Probodh Chandra Mitra v. Road Oils (India) Ltd.

The Judgment of the Court was as follows:—

Rankin, C.J:— This is an appeal from a decree pronounced by my learned brother Mr. Justice Page and dated the 26th March 1929. By that decree, the learned Judge declared that an agreement, dated the 18th April 1928, purporting to create a charge on the outstanding bills due to the Defendant Company for the amount due to the Plaintiff was not binding on the Defendant Company. He further ordered that the Defendant Company do pay to the Plaintiff an agreed sum of Rs. 42,000 with interest at six per cent until realisation and he reserved consideration of certain other matters which were dealt with by a subsequent order and are the subject of another appeal (No. 52 of 1929).

The suit was one brought by the Plaintiff against a Limited Company called the Road Oils (India) Ltd. It was originally instituted on the 19th December 1928 and, by his plaint, the Plaintiff alleged that the Defendant Company being a Company which manufactured and sold certain road oils appointed him in April 1928, treasurer or banian or financial agent. He was to find up to a certain limit moneys necessary for carrying on the business of the Company. He was to be the person who had the sole right to collect all sums due to the Company in respect of the oils supplied. He was to have the various rights mentioned in that agreement in order to obtain for himself refund of the advances which he undertook to make. The Plaintiff's case was that having been appointed under that agreement, he acted under that agreement throughout the rest of the year 1928 until the month of October; but that, in the month of October, the Defendant Company, instead of allowing him to collect the outstandings, commenced by the Directors to collect certain outstandings themselves in breach of the agreement. He further claimed that he had owing to him a sum exceeding Rs. 42,000 for which he asked for a decree, and he asked for the appointment of a Receiver. The Defendant Company, who were at that time the sole Defendants, by their written statement admitted that the agreement of the 18th April 1928 had been entered into. They referred to its terms for a proper construction and denied that it conferred a charge but they claimed that they had acted faithfully in terms of the agreement and cooperated with the Plaintiff to the fullest possible extent in realising and collecting the bills and other moneys due to the Defendant Company. They alleged that, as a matter of fact, the Plaintiff was in sole charge of the finances of the Defendant Company and met all the expenses for the working and management of the Company, and that none of the Directors handled the funds of the Company; so that the Defendant Company's case was that the agreement had been acted on to the full. As regards the allegation that the Defendant Company had broken the agreement by endeavouring to collect certain moneys direct and to prevent the Plaintiff from obtaining them as under the agreement he would be entitled to do, they set up various excuses. That defence was filed in January 1929.

It appears that certain persons of the name of Chowdhury had claims against the Company. They too at a previous stage would appear to have acted as financiers of the Company in some sense, and it would appear that they had brought a suit in June 1928, against this Company for moneys advanced. In the long run, that suit was settled and it was settled on terms that gave these Chowdhuries a money decree for a sum which amounted altogether to Rs. 25,000. It seems that Rs. 10,000 was paid in September 1928 and that thereafter the balance of Rs. 15,000 was payable, at all events, by November 1928. In these circumstances, before the Plaintiff's suit with which we are now concerned was heard, these judgment-creditors of the Company the Chowdhuries applied and obtained leave to attach the moneys in the hands of the Receiver in this suit. I should have explained that in the present suit a Receiver had been appointed for the purpose of collecting the outstandings in question and giving effect to the Plaintiff's claim.

The Receiver was appointed on the 3rd December 1928, and it would appear that he began his collections on the 15th December 1928. The Chowdhuries, as execution creditors, having obtained leave to attach moneys in the hands of the Receiver, obtained an order in execution for attachment of the bills and moneys in his hands, and, on the 4th February 1929, a prohibitory order was served on the Receiver for a sum of Rs. 15,000. When the case came on for hearing, it appears that the learned Judge had his attention called to the fact that these Chowdhuries were claiming in execution to obtain Rs. 15,000 out of the hands of the Receiver in this suit and denying that there was any charge given by the agreement upon which the plaint is founded and he made an order accordingly which made these Chowdhuries Defendants to this suit for the purpose of trial of a certain issue. That issue is stated in the order, dated the 7th March 1929, in this way: whether the Plaintiff has a prior charge on the outstanding bills mentioned in the said plaint and the moneys realised thereunder or which still remain to be realised and which moneys are now in the hands of the Receiver and which have been attached in execution of the decree made in suit No. 1357 of 1928. Accordingly, the case came on for trial.

As between the Plaintiff and the Company, it does not appear that there was any dispute to be litigated as to the amount of the debt due to the Plaintiff and, in the decree appealed from, a definite figure is fixed as the amount due by agreement. The fight took place between the Plaintiff on the one hand and the added Defendants—the—Chowdhuries they being mere execution creditors of the Company—on the other hand; and the question was whether the Plaintiff in respect of his advances to the Company had under the agreement of the 18th April 1928, any valid equitable charge or security at all, or whether he was not merely an unsecured creditor of the Company in respect of the advances that he had made. Each party called a witness. In the first place, the Plaintiff examined himself and his evidence was to the effect that he was present when Mr. Thomas signed the document relied on. He explained that, under that agreement, he had taken over charge of all the moneys and bills of the Company and had made advances and collected debts, various cheques and other instruments which had been sent to the Company in payment of bills being endorsed over to the Plaintiff and paid into his bank account by the orders of the Directors. It appears that in this Company there were three Directors/The Plaintiff explained how it was represented to him that these three Directors had a meeting, had agreed to get another banian and how, in the end, Mr. Thomas agreed to appoint him and signed the document of the 18th April. On the other hand, the Defendants Chowdhuries called Mr. Thomas himself and they were allowed to cross-examine him to some extent. Mr. Thomas said that he had signed it as a general draft of the agreement for the Company and he admitted that the agreement was intended to be acted upon and that it was acted upon. In these circumstances, the learned Judge delivered judgment.

When the document is examined, it appears to be an exceedingly inartificial, confused and in some way an absurd document. It begins “We D. Thomas and Directors of the Road Oils (India) Co. Ltd.” and it goes on to say that, in a properly constituted meeting of the Directors, it has been found expedient to appoint an agent or treasurer. Then it purports to appoint the Plaintiff as financial agent or treasurer on certain terms. Then it proceeds “given under our hands and seal of the Company on this 18th day of April 1928.” Then comes a rubber stamp “Road oils (India), Ltd.” and underneath it the signature “David Thomas.” On the left hand side at the bottom of the instrument, it appears that the seal of the Company has been put, but there is no evidence as to when or by whom. The document was made out in type-script and was made out with room for signatures of two Directors. Mr. Thomas having put in with a rubber stamp “Road Oils (India) Ltd.” and having signed his name appears to have executed this document and it was produced by the Plaintiff at the hearing of the case.

The learned Judge has proceeded to discuss first the question whether, if the document is good, it gives an equitable charge. It has been contended before us on this appeal by Mr. S.C Bose on behalf of the Respondents that it does not give the Plaintiff any charge at all in respect of his advances and he has relied, in particular, on the case of Palmer v. Carey and on certain observations of Lord Truro in the old case of Rodick v. Gandell (2). It appears to me without discussing, the special facts of the case of Palmer v. Carey that, if I apply the doctrine quoted therein from Rodick v. Gandell , the answer to the question of the meaning and effect of the letter of the 18th April 1928 is in no way obscure. “An agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund coming to the debtor will create a valid equitable charge upon such fund.” I take these words from the passage quoted by Lord Wrenbury in Palmer v. Carey and I look at the document of the 18th April in this light. I find there that the banian was to collect all moneys due to the Company and to see that the Company's dues were properly credited. He was also to pay all bills which the Directors would countersign as properly payable. He was to purchase all raw materials and he was bound to advance such moneys up to the limit of Rs. 40,000 as were required for manufacturing the article “Maxaco.” He was to prepare monthly statements of accounts and adjust the same and deduct the advances made by him to the Company with interest from the date of advance from the money collected out of the bills due to the Company and, if anything was found due from the Plaintiff to the Company, it was to be credited in the books of account to the credit of the Company and the Plaintiff was to be liable to pay the same. Cl. (7) is in these terms: “That you alone will have the right to collect all moneys due on bills and appropriate the same in satisfaction of your advance money and remuneration.” In these circumstances, I confess to have but little difficulty in agreeing with the learned Judge who was of opinion that the document, if binding, contained a valid equitable charge.

The next and the main question is whether or not the document is binding. It is quite clear that by the Articles of this Company the seal of the Company had to be put on the document in the presence of two Directors and, on the face of this instrument, there is the seal of the Company and only one Director signed. On the evidence of the Plaintiff, only one Director was present. In these circumstances, the question is—whether or not the bargain was duly entered into so as to be effective in favour of the Plaintiff. The seal was put upon the instrument by a person who was not authorised so to do. The document was not validly impressed with the Company's seal and, if it had been absolutely clear that a bargain of this sort required to be incorporated in a document having the Company's seal and if it had been absolutely clear that the Company had never acted upon the document so as to give rise to any estoppel, then no doubt this objection as to the irregularity of this sealing of the instrument would be conclusive. As a matter of fact, however, there is no requirement of the law making it necessary for an agreement of this sort entered into by and on behalf of a Company to be entered into by means of an instrument under the Company's seal. It may be that such an agreement is, under sec. 130 of the Transfer of Property Act, a transfer of an actionable claim. But in any case it is certain that an agreement in writing is sufficient to effect the purposes of such an instrument as this.

In the next place, the evidence in this case that the Company—all the three Directors—have acted under this agreement from the date thereof until the end of the year is overwhelming. The Plaintiff has received all the moneys outstanding. He has obtained constantly endorsements from the Directors to enable him to pay the Company's moneys into his bank. He has provided, as we see, advances to a large extent for the Company. The Company, when it came to file its written statement accepted the agreement and claimed at length that the agreement had been acted upon and that it had faithfully performed its part under the agreement. There can be no doubt, therefore, that this agreement was acted upon to the knowledge of all the Directors of the Company.

Now, in these circumstances, the reasoning of the learned Judge is this: Although there was no meeting of the Directors—by which the learned Judge would appear to mean a formal meeting of the Directors—to confer any authority upon Thomas to create a charge on behalf of the Company by an instrument executed by himself or a bargain made by himself on behalf of the Company, nevertheless under the Articles it was quite possible for such powers to have been delegated to Thomas. It is not suggested that the Plaintiff knew of any fact to the contrary and the learned Judge, therefore, begins by holding that the Plaintiff is not concerned to enquire whether Thomas was properly delegated by the Directors because on the principle of the case of Biggerstaff v. Rowatt's Wharf, Ltd. (3) that is a matter of internal management as to which a stranger is entitled to act on the presumption that the Director has such authority as it is possible for him to have under the Regulation. Consequently, the learned Judge agrees that, so far as the Plaintiff is concerned, if he made a bargain with Thomas on behalf of the Company, it would prima facie be a bargain which would bind the Company. The learned Judge, however, has directed his attention to the form of this highly inartificial document of the 18th April 1928. Finding that there is the seal of the Company and that this seal was affixed when only one Director was present, he has come to the conclusion that the document is not bidding on the Company at all and that, therefore, the Plaintiff has no valid equitable charge for his advances upon the outstandings which have been collected by the Receiver. His reasoning is to this effects—that, as the Plaintiff must be presumed ta know that the Articles require two Directors to be present when the seal is affixed, the principles laid down in Biggerstaff's case do not assist him and he cannot say that he was entitled to presume that one Director was authorised to affix the seal of the Company. So far the learned Judge appears to me to be entirely right. But the learned Judge has omitted to consider the question whether, even so, acting on the agreement by the Company would not give rise to an estoppel; and he has not considered whether, if a document under seal is in no way necessary, the mere defect in respect of the seal is an answer to the Plaintiff's claim. In my judgment, it is no answer to the Plaintiff's claim. To begin with, this document was prepared in draft upon the footing apparently that the parties to it were Thomas and the other Directors of the Company. The draftsman in a muddle-headed way ends up by saying “given under our hands and seal of the Company.” We do not know when the seal was impressed but there is space for two Directors to sign. That is the draft. When Mr. Thomas came to execute it, he did not carry out part of its inconsistent design. He did not carry it out properly as an instrument to be executed by the Company. He did not get the other Director to sign it. He put in what is called the Directors' rubber stamp and signed his own name under that apparently ignoring the seal. The question arises whether, though the seal of the Company was not validly affixed, the bargain is not one of which there is a perfectly good memorandum made on behalf of the Company and so as to bind the Company. In my judgment, the case In re Fireproof Doors, Limited Umney v. The Company shows that the mere defect in respect of the seal does not make the document for all purposes bad, even if it was intended to be under seal. In that case the debentures were improperly sealed and the defect could not as such be cured by ratification. The defect was patent to any one reading the Articles; but there being no provision requiring the debentures to be sealed at all the documents were held to be valid debentures although unsealed. In this case, it would seem that Mr. Thomas in putting the rubber stamp and signing his own name was abandoning the original intention of the draft as regards getting a formal sealing by the Company. Even if he was not, it appears to me that this instrument may be looked at as an agreement in writing made by Mr. Thomas on behalf of the Company. The learned Judge in the Fireproof's case pointed out that the principle of this matter was that the unsealed debentures would amount to an agreement or sufficient evidence of agreement for the issue of the debentures. In this case it appears to me that the instrument of the 18th April 1928 is an instrument which embodies the agreement therein contained and the principle to be applied is that where the Court is satisfied that it was intended to create a charge and that the parties who intended to create it had the power to do so, it will give effect to the intention, notwithstanding any mistake which might have occurred in the attempt to effect it. It is pointed out in that case that the agreement is implied by the irregular document of charge and by the invalidly sealed debentures. In the case before us, the attempt to get this document properly sealed has been abandoned or has failed, but there is no reason why the document should be cast aside for all purposes and the Plaintiff relegated to the position of an unsecured creditor. Thomas had power as manager to appoint a banian in place of the old banians.

In this Court Mr. S.C Bose asked leave to raise a contention that the document was not registered as required by sec. 109 of the Indian Companies Act. No such case was made at the trial. If notice had been given of it, it might well have been possible for the Plaintiff to get relief on some terms from the Court. We are entirely unable to allow such objections to be taken at this stage and accordingly we have not entered into that aspect of the case at all.

In my opinion, the decree which has been made in so far as it declares that the agreement is not binding on the Defendant Company should be set aside and instead thereof it should be declared that the agreement is binding on the Defendant Company and creates a valid charge in favour of the Plaintiff on the outstanding bills mentioned in the plaint and on the moneys realised in respect thereof by the Receiver. In these circumstances, it appears to me that the appeal succeeds and that the Respondents, the Chowdhuries, must pay the costs of this appeal. The order of the lower Court allowing costs to the Chowdhuries as against the Plaintiff is also set aside and the Chowdhuries must pay the costs of the Plaintiff incurred in that Court from 7th March 1929. The amount paid by the Respondents for Receiver's commission is to be allowed to them in account as against the Plaintiff less the sum of Rs. 150 paid to them by the Plaintiff's solicitor under his undertaking and the undertaking given by the Plaintiff's solicitor under the order of 29th May 1929 is discharged. The Receiver will be discharged and pass his accounts.

Buckland, J.:— I agree.

Messrs, Pal & Ray, Solicitors for the Appellant.

Messrs. D.K Ray: N.C Bose & Co., Solicitors for the Respondents.

P.C